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State needs to consider higher taxes

ALBUQUERQUE, N.M. — When the state’s Human Services Department has to ask the University of New Mexico for a $50 million handout to meet its obligations, it is time to ask if some tax increases are in order.

The Journal reported Friday that HSD needs the money to cover the cost of expanding Medicaid to benefit more people. UNM’s Health Sciences Center has about $200 million in reserves that it wants to use to build a new hospital. UNM told HSD it couldn’t part with the money.

It isn’t just HSD that’s in trouble. The latest Legislative Finance Committee estimate of revenue collection, issued last Monday, projects revenue will total $5.9 billion in the fiscal year that ends June 30. The Legislature agreed to spend $6.3 billion this fiscal year. State government tries to keep a financial reserve on hand – a little something tucked under our metaphorical mattress – for unexpected fiscal demands. LFC says a reserve that is about 10 percent of appropriations is sufficient to keep New Mexico’s bond rating high. The higher the bond rating, the lower the interest rate we have to pay to borrow. The reserve was 11.6 percent last year. The LFC reports that “an extraordinarily large transfer” had to be made from reserves to the general fund to balance the books. The reserve is estimated to be 5.6 percent this year.

The Legislature hasn’t been exactly profligate. It appropriated only a half-percent more to run the state this fiscal year than it did last year, well under the rate of inflation. Appropriations for the 2017 fiscal year are 1.25 percent below this year. As usual, the bulk of the taxpayers’ money goes to education. This year’s legislative session allocated 57 percent of the budget to public and higher education. Another 15 percent went to Medicaid, a program financed largely by the federal government to pay for health care for low-income citizens.

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The problem is on the revenue side. Tax collections and other sources of revenue are expected to end this fiscal year 5.38 percent below levels of the 2015 fiscal year. “Compensating tax, corporate income tax, and oil and gas revenues all lag well behind” levels of last year, the LFC reported.

Oil price declines are taking a huge toll. LFC says that every $1 change in the price of oil if it is sustained over an entire fiscal year leads to a $9.5 million change in general fund revenue. New Mexico crude was bringing $88 a barrel in 2014. LFC estimates oil will sell for $37 a barrel this fiscal year and $38 next year. (New Mexico oil sells for less than the West Texas Intermediate Crude benchmark because it is more costly to refine.)

Gross receipts data are “almost alarming,” LFC said. “Taxable gross receipts weakness is broad-based across employment sectors and counties.” The problem is made worse by what the LFC called “unusually elevated levels” of high-wage jobs tax credits, which are given to companies that hire new workers at wage rates above a level set by law.

Sen. John Arthur Smith, a Democrat from Deming and chairman of the LFC, said in a letter to legislators that accompanied a review of the 2016 legislative session that this is the second time in less than a decade that “solvency was the first task in budget development.” It is not likely to be the last. Fiscal problems are baked into this cake by two decisions that cost the state substantial revenue without improving our economy.

Gov. Bill Richardson and the Legislature agreed to cut New Mexico’s top personal income rate from 7.2 percent to 4.9 percent, and they agreed to eliminate gross receipts taxes on groceries and some medical services. Economist Brian McDonald estimates the income tax cuts lower revenue by $500 million a year. Eliminating gross receipts tax on groceries costs $200 million a year, he said.

The argument for income tax cuts was that they would stimulate our economy. Many New Mexico businesses are operated as sole proprietorships, limited liability companies or subchapter S corporations. Earnings from those types of organizations are reported on the owners’ personal income tax forms. Cutting personal income tax rates was supposed to help business owners retain capital that they could reinvest in their businesses and kick off growth. The expected business expansion boom never happened.

The Martinez administration implemented its own gross receipts and corporate income tax cuts designed to encourage business expansion. That boom hasn’t happened either, and for the same reason: Business growth depends on much more than taxation.

The elimination of gross receipts on groceries was sold as a way to give low-income New Mexicans a reduction in their food bills. Opponents argued, correctly, in my opinion, that low-income New Mexicans already got relief through food stamps (now known as the Supplemental Nutrition Assistance Program, or SNAP), that further relief could be targeted at the poor through low-income tax credits, that better-off residents didn’t need the tax relief, and that the revenue loss would have to be made up by raising gross receipts taxes on everything else the poor and everyone else buys.

Gov. Susana Martinez ran on a pledge of no new taxes and has made it pretty clear she won’t accept tax increases, but she and the Republican state House of Representatives, which is responsible for proposing the budget, collaborate with Democrats in the Senate to craft spending bills that we struggle to pay for. There is always a way to improve efficiency, and certainly we are paying for government programs we can do without. Even so, there is a level of spending New Mexico has to sustain if we are to educate our children and protect our citizens. Because the New Mexico Constitution requires that we balance our budgets every year, taxing ourselves enough to pay for the government we demand is not only common sense. It is the law.

UpFront is a daily front-page news and opinion column. Comment directly to Winthrop Quigley at 823-3896 or wquigley@abqjournal.com. Go to www.abqjournal.com/letters/new to submit a letter to the editor.

 

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